What action can I take against debtors who refuse to pay what they owe?
Taking a systematic approach to debt collection is always beneficial. It’s important to have fixed processes in place, as failing to collect debts efficiently can lead to a multitude of problems for your business.
Issues such as increased bad debts, financial decline, or even cash flow insolvency and liquidation, can emerge when your business isn’t paid for the work you’ve carried out. Although this may seem like an impossible situation to resolve, you do have several potential paths available.
What can you do when debtors won’t pay?
Initially, you should consider whether your debtor is insolvent as they may be taking steps to enter a formal procedure, such as company administration or liquidation. In this case, the officeholder will contact you as a business creditor.
If not, here are some of your options when faced with a debtor who refuses to pay:
Debt collection agency
Placing the problem in the hands of a reputable debt collection agency offering a no collection, no fee arrangement can bring results. Using them to contact your debtor may lead to full settlement, but if it doesn’t, you can also instruct the debt collector to begin legal proceedings on your behalf.
If you want to preserve your trading partnership with the debtor, a formal demand letter may be enough to persuade them to pay, or at least acknowledge the debt so you can begin negotiations on repayment.
Formal demand letter
An official demand letter sets out the details of the outstanding debt. If your debtor acknowledges that the debt exists, you may be able to negotiate with them to repay in instalments over an extended period.
Money claim
The money claim service can be used to file a claim against debtors who live in England or Wales. Your debtor can make a counterclaim or file a defence. If they’ve been refusing to pay they may simply not respond. If the court makes a judgment in your favour, you can enforce it if it remains unpaid by instructing a bailiff service to seize assets, for example.
Statutory demand for payment
Sending a statutory demand for payment after the demand letter gives your debtor 21 days to pay the sum in total, or 18 days in which to ask the court to set aside the statutory demand.
They need to have strong evidence to support such an application – documentary evidence that the debt has already been paid, for example. You may be able to send a statutory demand if your debtor is an individual and owes £5,000 or more, or at least £750 if the debtor is another business.
Winding-up petition
On continued refusal to pay a statutory demand, you can apply to the court to wind up the business using a winding-up petition. If supported by the court, a winding-up order will be issued and the business will have to enter compulsory liquidation.
Considerations when taking action against a debtor
If your debtor has been consistently unreasonable over the money they owe, you may welcome the end of the trading relationship given the cost of chasing this type of debt. You might still value their business, and think they may pay at some point. In this case, a softer approach might be more successful in the long run.
In other circumstances, your only chance of recovering part of the debt might be by enforcement through the court. Ultimately, if you decide to proceed, acting quickly is always recommended. Your business can suffer serious cash flow issues if you have too many debtors who don’t pay on time.
Author details – Chris Bristow is a business debt expert at Real Business Rescue, company rescue, restructuring and liquidation specialists with a wealth of experience in supporting company directors in financial difficulty.
Owning a Business: An introduction to what you need to know
Owning a business comes with much responsibility and red tape. This workshop offers an insight into what these are, and how you can best deal with them to avoid getting into trouble. This workshop is aimed mainly at the owners of Limited Companies, but much of the content is relevant to other business formats too.
Financial Management – Do you know your numbers?
One of the most important things a business owner should know, is “their numbers”. Do you know how well your business is performing and in which areas? Do you know who you owe and who owes you? Can you afford to make upcoming payments and meet your financial obligations?
Bookkeeping for Business Owners
Business owners often handle their own bookkeeping when they first start out, as they are time-rich but money poor. However, bookkeeping isn’t a skill you acquire simply by registering a business. But with a robust process, great software, a little training, and someone to call when you’re unsure, it is possible to do this well, even as a novice.
Pricing for Maximum Profit
Are you charging enough for your products or services to allow you to provide a service you are proud of and that allows you to not become a busy fool? Are you confident that you are charging the correct price for your goods or services?
Navigating the Latest Budget: A Survival Guide for Small to Medium Businesses
The Budget announced on October 30th will bring substantial changes for many organisations, resulting in increased costs. So, how can we navigate these changes and still maintain profitable businesses?
So much more than desk space: how York St John Enterprise Centre helps businesses
Since its launch in 2022, the Enterprise Centre at York St John University has helped dozens of fledgling businesses with its unique package of support. It has become a hub of innovation with a collaborative environment where companies can thrive.
What action can I take against debtors who refuse to pay what they owe?
Taking a systematic approach to debt collection is always beneficial so it’s important to have fixed processes in place as failing to collect debts efficiently can lead to a multitude of problems for your business.
The importance of having a robust debt collection strategy for your business
Efficient debt collection is a key driver for growth in a business and a fundamental part of operating with healthy cash flows. It’s because, without the cash available when it’s needed to run the business day-to-day, there’s a risk of falling into financial decline.
What are the finance options for a struggling company?
Running a struggling company in financial difficulty is certainly challenging. However, with so many different finance options now available that don’t involve the high street banks, be reassured that you can quickly secure the cash injection you need and get back on track.
Sustainability Made Simple: How Jack Colding Helps Businesses Save Money and Thrive
Our sustainability specialist Jack Colding can help you with simple, sustainable ways to help your business save money and thrive.
Due diligence on a commercial property buying
If you are considering buying a commercial property, it is up to you to find out as much as possible about the property and the surrounding area before you commit yourself.
From Grants to Growth: Securing Funding for Rural Business
Rural subsidies are complex – so we asked our rural business specialist Nick White to give us his top tips for getting the funding your business needs to succeed.
Young Entrepreneur Guide
Do you have a business idea? Or do you want to work for yourself? Then the Young Entrepreneur Guide is here to help you!
